The Gujarat Appellate Authority of Advance ruling (AAAR) has upheld the AAR’s ruling and held that no Input Tax Credit (ITC) on expenses incurred on buy-back of shares.
The bench of Sunil Kumar Mall and Rajeev Topno has observed that there is no requirement to reverse ITC of tax paid on common inputs & input services, in relation to buy back of shares, is not legally tenable owing to the deeming fiction which forms a part of section 17(3) via an inclusion clause.
The appellant, Gujarat Narmada Valley Fertilizers & Chemicals Ltd. a Public Ltd. is a company and a SPSU’ is engaged in the manufacturing of fertilizers and chemicals & is registered with the department. They initiated a share buyback program.
The appellant sought the advance ruling on the issue whether the expenditure incurred by the applicant, a listed entity, for the buyback of its shares in the course o f furtherance o f business, is eligible for ITC under GST regime?
The AAR held that the applicant is not eligible to avail the ITC involved in the expenditure incurred for buyback of its share and is also required to reverse the ITC on common inputs and input service used in relation to the expenditure incurred for buyback of share.
The appellant challenged the AAR’s order. The Appellant contended that in terms of section 2(17)(b), the definition of ‘business’, covers the activity of buy back of shares. The professional fees, legal expenses, consultancy charges, & other incidental costs incurred in relation to the buy-back of shares are directly connected to & undertaken in the furtherance of business and are therefore eligible for ITC u/s 16(1).
The appellant contended that while buyback process does not directly result in immediate outward supply it is an essential step towards optimizing financial health & ultimately increasing its ability to make taxable supplies. The term ‘transaction in securities’ is very wide & should be read in conjunction with value of exempt supply & not independently. In case of buy back of shares per se there is no supply in conventional sense; that the shares bought back are not in the nature of assets for the company & have to be cancelled after buyback within a prescribed time frame.
The AAAR has held that shares being securities, are neither goods nor services. Therefore, a transaction in securities, is not a supply in GST and hence not taxable. Section 17(2), restricts allowance of input tax credit of goods or services or both to the extent of expenses attributable to taxable supplies. Therefore, any tax paid on goods or services or both used for transaction in securities, which is not even a supply under GST, is not allowed as input tax credit. As per Section 17(3), the value of transaction in securities is included in the value of exempt supply. Thus, the intention of the legislature is to not allow the input tax credit of the various costs incurred in the transaction of securities.
Ruling Details
Applicant’s Name: M/s. Gujarat Narmada Valley Fertilizers & Chemicals Ltd.
Ruling Date: 22/09/2025
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